Will the steady growth continue in Stable Asia?

This week we will have a look at the coal market in what we call Stable Asia. A market which is often overlooked when discussing the seaborne coal market due to fairly low volatility in coal imports to these economies. Considering that Stable Asia (Hong Kong, Japan, South Korea, and Taiwan) is by far the largest coal import group today, overlooking it would be a mistake.

Imports to these economies totaled 404Mt in 2015, up 1% from 2014 and a new all-time high. In the first seven months of 2016 coal imports are down 4% YoY, the first time with negative growth since 2009 when the global trade of coal was hurt by the financial crisis. Is this the start of a new trend of declining imports into this group of economies? To answer this question, we must take a closer look at these economies individually.

Unlike China and India, the coal production within the Stable Asia economies is very limited. Thus, the level of coal imports into Stable Asia will to a great extent depend on the growth rate in the thermal coal fleet, and its competitiveness with other energy sources.

Japan

Let’s start with Japan, the largest importer within this group with an import of 191Mt in 2015. Since the start of 2010, only 2,750MW of new thermal coal capacity has been added. This compares with an existing capacity prior to 2010 of 41,000MW. With strong public opposition to restart nuclear plants after the Fukushima disaster, the number of new thermal coal projects has accelerated in recent years. More than 3,000MW of thermal coal capacity is currently under construction, another 2,300MW are permitted, and another 13,500MW are under environmental assessment/planning. Although, coal will compete with renewables and LNG going forward we expect Japanese coal imports to increase in the next 3 to 5-year period as new thermal coal capacity comes on stream.

South Korea

The second largest importer in the Stable Asia group is South Korea, with 135Mt of coal imports in 2015. Since the start of 2010 about 3,000MW of new thermal coal capacity has been added. This compares with an existing capacity prior to 2010 of about 26,000MW. More than 9,000MW is currently under construction, another 3,000MW has been permitted for construction, and 5,300MW are under environmental assessment/planning. Similar to imports into Japan, South Korea is expected to grow strongly in the next 3 to 5-year period, as new thermal coal capacity comes on stream.

Taiwan

The third largest importer in the Stable Asia group is Taiwan, with 67Mt of imports in 2015. Taiwan currently has 5,600MW of thermal coal capacity under construction, we thus expect imports to increase here as well, in the next 3-5 years. Unlike Japan and South Korea, there aren’t any other thermal coal projects under planning in Taiwan. We therefore think the number of coal plants coming on stream after this 3 to 5-year period will be very limited.

Hong Kong

There are no new thermal coal plants being built in Hong Kong in the next few years, we therefore expect coal imports to be stable to slightly negative going forward.

What to expect

With close to 18,000MW of thermal capacity currently under construction (approximately 20% of the total existing capacity), and another 5,400MW projects permitted, and about 19,000MW under assessment/in planning stage, we believe the negative growth in imports in 2016 is cyclical rather than structural. We therefore expect the imports into Stable Asia to continue to grow in the next 3 to 5-year period. So, maybe it is time to start calling the group Stable Growing Asia…

Next week we will have a closer look at the Emerging Asia (Bangladesh, Malaysia, Pakistan, Philippines, Thailand and Vietnam) where coal imports are coming from a low base but is expected grow considerably going forward.

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